Question

In: Finance

A 10-year, 10% coupon bond, semi-annual payments, $1,000 Par, is expected to make all coupon payments...

A 10-year, 10% coupon bond, semi-annual payments, $1,000 Par, is expected to make all coupon payments but to pay only 50% of par value at maturity. What is the expected yield on this bond if the bond is purchased for $975?

a. 10.00%

b. 6.77%

c. None of the options are correct.

d. 11.68%

e. 6.68%

Solutions

Expert Solution

Semi-annual coupon = 1000*10%*6/12 = 50

Maturity value = 1000*50% = 500

Total payments = 10*2 = 20

Using calculator

Calculator
Inputs:
PV                  (975.000)
PMT                        50.00
FV                      500.00
N                              20
Output:
I/Y = IRR 3.385039%
Annual YTM 6.77008%

Answer is:

6.77%

Please rate.


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